“Everyone feels the need to say, ‘I’m really sorry I have to ask you about this’ and ‘I’m only carrying out orders from my boss,’ ” Mr. Baer said. (For the record: this reporter was only acting on orders from his boss.) And, of course, the Very Serious Media are not writing the Orszag Love-Child Story, they are merely writing about the media frenzy surrounding it.

The race to cover the scandal-of-the-day is one of the worst aspects of contemporary journalism – but the Orszag scandal is perhaps a fluffy variation of this dangerous habit. Where the danger lies is in how it affects political fortunes and policy. I am all for scandal-mongering about public officials – and invading their personal lives but only – as I wrote before in defense of indiscretion: “If the media wants to report on some lewd scandal, they can at least do their audience the favor of avoiding the hypocritical moral posturing and just revel in the tawdriness of it. It would at least be honest.” This faux-outrage – this sense that we must hold public officials to some imagined moral standard that has little to do with their actual job – is merely a crude excuse to allow “journalists” to cover tabloid gossip. Tabloid gossip is fun and interesting – but when it is always framed as a serious judgment on some public figure or policy – it disfigures the political conversation. You get the insanity of people claiming Bill Clinton is a bad president because he was an unfaithful husband. You get people trying to claim Tiger Woods held himself up as some moral role model when in fact, he just claimed he was a really good golfer. You get outrage over any statement deemed “insensitive” – from Harry Reid to Sonia Sotomayor to Trent Lott.

And much worse, when it comes to judging policies and legislation, journalists follow the same mentality – picking out scandalous elements at the expense of understanding what is going on. Death panels! Stimulus money going to “imaginary” (i.e. mistyped) districts! Emails from climate change scientists that “prove” it is a hoax! Bailouts to health insurance companies! Giant vampire squids searching for cash!

These stories are presented to the public as the story when in fact they are mere sideshows – hence the name given to the media-political atmosphere that arose under Bill Clinton and has remained until today: The Freak Show. This scandal-mongering creates reporting on policy that is entertaining but conveys a fundamentally limited view of what is actually being done and proposed. As Ezra Klein has pointed out:

[N]ewspapers work very hard to report things that are true, but they are less concerned with whether the overall impression from their reporting is a true impression.

The end result that we read day after day is faux-outrage presented without any perspective – with the citizenry being blocked from actually knowing what is going on behind the billowing smoke of scandal.

This is part 3 of a 4-part series of posts. Part 1 provided an introduction and description of the groups that benefit from the government spending status quo: the elderly, the military, the poor, and big corporations in that order. The overall societal status quo clearly favors all these groups except the poor. Part 2 described the main political dynamics behind what the Republicans are doing, along with their solutions; it explained why Republicans oppose government intervention in principle, and yet protect the status quo because it benefits those interest groups that support their party – the elderly, the military, and the big corporations. The solution to this political dilemma is to “starve the beast,” to protect the status quo until it becomes so catastrophically unstable that it has to be dismantled; which explains why, when in power, Republicans have both cut taxes and increased spending – protected today’s elderly at the expense of tomorrow’s elderly while trying to force Democrats to take responsibility for the undoubtedly unpopular solutions to the deficit problems created by Republican administrations.

Given this, the next question is: what is the Democratic approach? Do they seek to dismantle the programs that benefit the Republican interest groups? Have they figured out the political answer to the politics of “starving the beast” that so benefit the Republican Party? In short, the answer to both is no. Social Security and Medicare do benefit the elderly – who were the only demographic group to go Republican, even in the aftermath of Bush – but they are historic Democratic programs. They represent in some sense liberalism at its best* – an attempt to soften the roughest edges of capitalism, to ensure that our grandparents and parents are taken care of in their old age. It’s not clear that the Democrats have the political will to go about rescinding subsidies of various sorts to big corporations or to dramatically cut military spending. This doesn’t simply motivate Democratic voters, but the backlash caused by doing so could hurt the party. And the Obama administration’s approach of blaming the short- and mid-term deficit on Bush’s irresponsibility is of decreasing political utility, even if it has the benefit of truth.

What the Democrats offer is at best a partial solution in the hope that before the time is too late, the Republicans will abandon their destructive “starve the beast” strategy. In short, the Democrats are finessing the issue – to avoid the hard clashes that the Republicans claim are inevitable, and that Republicans while in power have made almost inevitable.

What the Obama administration offers now is a 3-part plan – one that is, to some degree, a Hail Mary pass, a desperate attempt to ease long-term deficit before it is upon us.

Step 1: Keep the Economy Going. Part of the urgency for the stimulus early in Obama’s term was the knowledge that if the economy was not growing, then the staggering short term deficits incurred by the Bush administration could prove crippling to the economy. The only way to pay off the debt without causing significant social problems at home or defaulting on the debt is to have a growing economy. This is how stable nations have gotten out of deficit holes such as the one we are in, and how we almost painless paid off massive debt following World War II, following the stagflation of the 1970s, and again in the 1990s. (A constantly growing economy also happens to be an implicit part of the social bargain at the heart of the American dream.) The stimulus was needed because keeping the economy growing was essential to easing the fiscal pressure on America’s mid-term debt.

Step 2: Health Care Reform. Policy wonks – led by Office of Management and Budget Director Peter Orszag – have seen this fiscal timebomb coming for some time. They can see the two root causes of the rapid growth in projected federal expenses:

(1) the aging of our population and

(2) the rapidly rising cost of health care, which has been growing faster in America than in any other nation in the world for the past several decades.

As a necessary precondition for rationalizing our current system, the plan would also significantly extend health insurance – following Milton Friedman’s observation that as health insurance approaches universality, political incentives change to allow for more cost control (even in wholly private systems.) In part this explains how the current health care bills has become not only the most significant effort to expand coverage, but the most significant attempt at cost control in a generation. Mark McClellan, director of the Center for Medicare and Medicaid Services under George W. Bush, for example, called the bill “the right direction to go” while suggesting medical malpractice reform would also be good. (However, as Ron Brownstein observes, “since virtually, if not literally, none of [the Republicans] plan to support the final health care bill under any circumstances, the package isn’t likely to reflect much of their thinking.”) The bill includes pilot projects for almost every other cost control program that those interested in health care believe has promise.

The hope is that if we act now before the imminent wave of Baby Boomer retirements, we will soften the impact of the fiscal timebomb that is entitlement spending. Then, programs can be adjusted without being slashed – as proponents of the “starve the beast” approach would prefer. Our debtors, including the Chinese government, have thus taken a keen interest in the steps we are taking to curtail the growth in health care costs. As one prominent Chinese economist has said, “At some point, if you refuse to contain health care costs, you’ll go bankrupt.”

Step 3: The Grand Bargain. These first two parts were the easy ones. This part is where it gets tricky. If the first two parts of the plan work, the pressure for massive change will be relieved. The mid-term deficit incurred during Bush’s term and during the early Obama years will be less painful in the face of a growing economy. The long-term deficit will still be a problem, but not an insurmountable one if health care costs stop growing so rapidly. Each of these will take tremendous pressure off of our fiscal situation – but neither are enough to make the status quo sustainable. At this point, Obama has said he hopes to strike a “grand bargain,” putting everything on the table, and engaging in a frank discussion of tax reform and entitlement reform, of how America collects money and what it spends the money on. At the moment, with the idiocrats dominating the public debate, this doesn’t seem a very promising route.

Tackling these issues would be many times more explosive than health care as so many groups have a stake in maintaining the status quo. And the biggest flaw in the plan is that by relieving the pressure, the Obama administration may simply put off the day it will be dealt with – no matter how determined they are to deal with these issues. But breaking the grip of the idiocrats was at the core of the promise of Obama’s campaign. And these are core issues Obama was elected to address.

*Contemporary Democrats do not – contrary to the caricature Republicans push – think government and centralized control is the solution to everything; but they do believe that government can be a force for good, that through democracy we can make modest steps and institute policies that improve our society. And despite an organized campaign to suggest otherwise, history has demonstrated this to be true, from the the founding of our nation, the building up of our infrastructure, to that giant social engineering project called abolition, to Social Security and bank regulation, to the Civil Right Movement.

But as the Obama administration presented it initially: Health care reform is deficit reduction. (Ezra Klein, health care policy wonk, blogger, and columnist for the Washington Post, has been making this case all along, as have many other technocratic types and policy wonks and health care experts.) That’s why Peter Orszag made the phrase, “bend the curve” into a buzzword, referring to the attempt to bring down the rate of growth of health care spending. Here for example is a graph of our projected budget deficit as a percentage of GDP based on current growth rates, lowering those growth rates, and adopting measures to have Britain-like growth rates:

While any bill that might get past Congress at this point won’t live up to the early wet dreams of policy wonks (It won’t even bring us to the level of the blue line in the above graph), it would – to quote Ezra – still “represent the most significant effort at cost control in a generation, if not ever.” (my emphasis.) (He specifically refers to three provisions in the Senate Finance Committee bill: the excise tax on high-cost insurance plans; the newly empowered Medicare Commission; and various delivery-system reforms.) In fact – again according to Ezra – the “health-care reform bills currently under consideration in both the Senate and the House actually cut money from the deficit.” Despite this, the same Republicans (often the exact same individuals) who 6 years ago cast “a vote to add about $400 billion to the deficit in the first 10 years, and trillions more in the decades after that,” with Medicare Part D are now criticizing the current bill which would decrease the deficit as “fiscally irresponsible.” Ezra:

It’s like watching arsonists calling the fire department reckless.

This constant obstructionism by the Republicans – on both matters of fiscal stimulus and health care – is gradually eating away at the public will to act and is therefore undermining confidence in America’s economy and long-term fiscal situation, and by undermining this confidence, making a disaster more likely. Noam Scheiber of The New Republic describes how the struggle to enact meaningful health care reform is a concern for the largest holders of American debt, the Chinese:

To his surprise, when Orszag arrived at the site of the annual U.S.-China Strategic and Economic Dialogue (S&ED), the Chinese didn’t dwell on the Wall Street meltdown or the global recession. The bureaucrats at his table mostly wanted to know about health care reform, which Orszag has helped shepherd…”At some point, if you refuse to contain health care costs, you’ll go bankrupt,” says Andy Xie, a prominent Shanghai-based economist, formerly of Morgan Stanley.

The efforts at cost control proposed by the Democrats might fail, as Republicans suggest. But it is irresponsible not to try, and to obstruct any attempts to try. Republicans have begun to demagogue the bills before Congress both for cutting Medicare and for increasing the amount of health care spending. They are not willing to give the Democrats any political cover to take any fiscally responsible measures. This partisan refusal to work towards solving long-term problems has been the key to Republican successes from 1994 to the present. (Not so for the Democrats, many of whom joined George W. Bush in passing his No Child Left Behind act, his tax cuts, and his Medicare Part D bill, but undoubtedly, both sides bear some blame.) This has created a political culture in which Washington has two directives: “spend money on things I like and don’t raise my taxes.” This isn’t solely a Republican problem. It is more that the Republicans, by remaining stubbornly united, have made these flaws evident. Klein again:

The issue isn’t that some storm will unexpectedly slam into the economy and there will be nothing anybody can do, but that the storm will hit and Congress will choose to do nothing

The biggest danger America faces is not rising health-care costs or global warming or the budget deficit. It’s the political system’s inability to act on these issues, even though the solutions are generally quite clear.

Philip Bobbitt and other use the term “market-state” to describe the next (and to some extent current) role of the state – in contrast to its previous historical roles. While throughout most of the 20th century, the state’s role was to provide basic services and goods to its people, by the turn of the century – starting in the late 1970s and early 1980s, the state’s role had evolved to providing opportunities to its citizens. The United States has been on the leading edge of this evolution – from Jimmy Carter’s first steps towards deregulation to the Ronald Reagan’s riding of this zeitgeist to power – as he ushered in an era of increasing deregulation and privatisation, and a reduction of all government interventions in the economy. In proposing that “Government is not the solution to our problem – government is the problem!” Reagan placed the Republican Party at the head of this evolution in the government’s role – making Democrats who opposed this seem out-of-touch.

But if a market-state’s success is judged by the extent to which it maximizes opportunities for its citizens – the problems of global warming and health care now threaten to undermine the legitimacy of America’s market-state. The problem in each case began long before the transition to the market-state – but in both, this transition escalated the scale of the problem and made it harder to manage. However, for this post, I’m only focusing on health care.

Given the government and state insurance plans for the poor and elderly, this growth undermined the fiscal solvency of the government overall.

The rapid rise in costs has undermined the faith of many citizens in the market.

The business model private health insurance companies have adopted creates extreme insecurity for citizens – thus dampening economic growth and the entrepreneurial spirit needed for a market-state to thrive. Paul Waldman describes the perversity of this model in The American Prospect:

[T]he central pathology of our deeply pathological health-care system is that most of us have no choice but to get health coverage from an entity whose sole reason for being is to take our money and then try to avoid paying for our care when we get sick.

To date, most Repbulicans and right-wingers do not seem to have realized the scope of this problem – the extent to which it undermines the very legitimacy of the type of state they have been promoting. The best proposals that have been made from the right have focused on the ideology of anti-governmentism rather than a focus on the market-state expansion of citizen opportunity that was the true core of Reagan’s success. For example, John McCain, in a bold move, sought to overthrow the system of health care insurance as we know it – and to place the responsibility for paying for health care squarely on the shoulders of individual citizens – instead of the collective pools that spread out such risk, whether organized by employers or the government. This would hold down health care costs – because individuals would be constrained from making health decisions by the amount of money they had to spend. The theory behind this was that the increasing costs of health care stemmed directly from the fact that consumers were going to the doctor or hospital or otherwise using health care more because they did not bear the direct consequences of their decisions. Of course, being out of power and with their ideas generally unpopular with the public, Republicans have instead merely sought to minimize or deny the clear problems with health care and simply be obstructionist.

[T]he standard competitive market model just doesn’t work for health care: adverse selection and moral hazard are so central to the enterprise that nobody, nobody expects free-market principles to be enough.

Their are various solutions being worked out by the Democrats – to create regulations that prevent health insurance firms from maintaining their exploitative business model; to create a competitor to these firms that will operate on a different model to keep them honest; to link payment of health care to outcomes instead of time and services.

The great irony is that if the Democrats are successful in reforming health care, they will have legitimized the market-state which many on the left are suspicious of – but they will have done so by firmly rejecting the Republican dogma that the government is always the problem. As Bill Kristol wrote in his famous 1993 memo on Bill Clinton’s attempt at health care reform:

[T]he long-term political effects of a successful Clinton health care bill will be … worse … It will revive the reputation of the party that spends and regulates, the Democrats, as the generous protector of middle-class interests. And it will at the same time strike a punishing blow against Republican claims to defend the middle-class by restraining the growth of government.

Today, it is only the Democrats who will be able to preserve the legitimacy of the market-state in the midst of this crisis.

The fundamental question is whether Krugman is a brilliant hedgehog, an insecure pain in the ass, or – as frequently is the case – both at the same time.

One suspects that Krugman is at least part right – and that Obama and his team realize this. Obama’s response to the financial crisis has been significant – and more than any government response in history – but it is dwarfed by the scale of the crisis, as Krugman is fond of pointing out. Nicholas Lemann in the New Yorker tries to explain why Obama seems to be ignoring Krugman’s advice so far:

[Obama] has to address the crisis, and he is trying to add enough new controls to the system to prevent a repeat of it, but it looks as if his heart is with the big new programs in his budget and with his foreign-policy initiatives. Bank nationalization would drive the stock market down and increase theagita of people with 401(k) plans. Moderate Democrats in Congress would further soften in their support for the Administration’s legislation. The price of bank nationalization might be Obama’s super-ambitious plans in other realms, which, if history is a guide, are likely to pass only in this first year of his Presidency. If they do pass, he will have generated tax revenues from affluent people for social purposes far beyond those of the House’s tax on A.I.G. bonuses, and he will have significantly eased the distress of people who can’t get good health care or education. That is a lot to put at risk.

[I]n the short term, the Geithner plans will work to restart the “old” economy. In this moment before that happens though, pressure from Europe and internal critics as well as a desire to avoid a repeat of this fiasco will enable enough forward-looking, gradualist regulation and legislation to correct the long-term problems with high finance.

Obama’s top budget officials seem confident that they can deal with this immediate difficulty. His larger challenge is to take on the politics of evasion promoted by those who would indefinitely delay health-care reform, energy conservation and the expansion of educational opportunities. Already, his lieutenants are signaling how he will cast the choice: between “taking on the country’s long-term challenges” or just “lowering our sights and muddling through,” as one senior aide put it.

If Geithner is responsible for fixing the current crisis, Peter Orszag is responsible for the long-term outlook – of balancing Obama’s plans to expand government’s role and stabilizing our deficit spending. As Jodi Kantor in the New York Times explained:

Mr. Orszag embodies the administration’s awkward fiscal policy positioning: big spending now, with a promise to scrub the budget of waste and a bet that economic recovery and changes to health care will gradually reduce the deficit.

A lot of pieces need to fall together for this to work. I have confidence in each piece of this plan – but together, the venture seems a bit bolder than is wise.

Perhaps this is a perfect moment in history for Obama’s plan – and Obama has the insight to see this; perhaps Obama is a master of politics who is able to get all of these items through; but it’s hard for me not to be discomfited by the manner in which everything is coming together.